The Fed should be much more independent of the administration
A)if we wish to minimize the problem of dynamic inconsistency
B)if there is a strong mandate to fight inflation
C)if there is evidence that Congress is unable to make hard choices
D)all of the above
E)none of the above

Question

Quizplus · Accepted Answer

If we wish to minimize the problem of dynamic inconsistency, then the Fed should be independent of the administration to avoid political pressure and influence. Additionally, if there is a strong mandate to fight inflation, the Fed should have the independence to make difficult decisions without fearing political blowback. Lastly, if there is evidence that Congress is unable to make hard choices, which often happens due to political considerations, the Fed's independence can help provide stability and predictability in the economy. All of these reasons point to the need for the Fed to be more independent of the administration.

The Fed Should Be Much More Independent of the Administration